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Killing Three Birds with One Stone: A Defense of the Carbon Tax

Reuters/Yara Nardi

By Michael Rainey

October 10, 2018

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Yale professor William Nordhaus won the Nobel Prize in Economics this week, prompting Howard Gleckman of the Tax Policy Center to review one of Nordhaus’s most well-known ideas: a tax on carbon fuels. Here’s Gleckman’s summary of Nordhaus’s pioneering work on the topic:

“Nordhaus has been writing for four decades about climate change and the value of using prices to reduce carbon emissions. His research shows that raising prices through, say, a carbon tax, is a far more effective and efficient way to lower carbon emissions than direct government controls on the quantity of emissions through, say, regulatory limits on cars and power plants. Higher prices will encourage firms and consumers to find alternatives to carbon-based products as well as encourage new technologies that will make those substitutes competitive. This has become the mainstream view among economists.”

What’s accepted by most economists isn’t necessarily what’s accepted by most politicians, though, and Gleckman recognizes that with opposition to a carbon tax as strong as it is in the Trump White House and Republican-controlled Congress, Nordhaus’s policy proposal is unlikely to become law any time soon.

Even so, the Gleckman thinks the basic idea of a carbon tax continues to make sense and suggests that it could play an important role not just in reducing carbon emissions, but also in raising revenues to help fund essential government spending:

“But climate change is real. So is the US budget deficit. And so is the need for additional tax revenue to support the needs of aging Baby Boomers. Somewhere along the way, lawmakers will realize that they can kill all three birds with one stone.”